The directors of Betfair have been accused of presiding over “significant governance and oversight failures”, including signing off on inaccurate accounts, in a fiasco that needs immediate investigation, an influential investor group has said.

The Local Authority Pension Fund Forum (LAPFF) has called for “new independent directors” to be appointed to investigate the Betfair’s dividend payments over the past three years and the role of its directors and auditors, KPMG.

In a strongly worded note to investors, the LAPFF has said: “It is clear that there have been significant governance and oversight failures in relation to the auditing and maintenance of the company’s accounts.

"In LAPFF’s view, as these failures appear to be current and continuing, existing board members and contributing parties should be held to account.”

The note follows an admission by Betfair, reported by The Sunday Telegraph three weeks ago, that it paid out millions of pounds of “illegal dividends” in recent years.

In its annual report, the betting firm said its 2011 final dividend and the interim and final dividends for 2012 and 2013 were paid erroneously since, by law, the “company did not have sufficient distributable reserves to make those distributions and so they should not have been paid by the company to its shareholders”.

In addition, the purchase of 6.5m shares at the year end in April 2012 was also executed when the “company did not have sufficient distributable reserves”, Betfair has said.

The company said the problems were the “result of certain changes to the technical guidance issued by the Institute of Chartered Accountants in England and Wales in October 2010”.